Essentials of Economics 4th Edition Krugman Test Bank Download
Essentials of Economics 4th Edition Krugman Test Bank Download
Essentials of Economics 4th Edition Krugman Test Bank Download
Krugman
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2. Which of the following statements about the differences between monopoly and perfect
competition is INCORRECT?
A) A monopolist has market power, while a perfect competitor does not.
B) Unlike a perfectly competitive firm, a monopoly can make positive economic
profits in the long run.
C) A monopoly will charge a higher price and produce a smaller quantity than a
competitive market with the same demand and cost structure.
D) Monopoly profits can continue in the long run because the monopoly produces
more and charges a higher price than a comparable perfectly competitive industry.
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4. _____ firms have the most market power.
A) Monopoly
B) Duopoly
C) Oligopoly
D) Monopolistic competition
5. An industry with a single producer that sells a single product with no substitutes is a:
A) perfectly competitive industry.
B) monopoly.
C) oligopoly.
D) monopolistically competitive industry.
6. An industry with a firm that is the only producer of a good or service for which there are
no close substitutes and for which entry by potential rivals is prohibitively difficult is:
A) a duopoly.
B) a monopoly.
C) an oligopoly.
D) perfect competition.
8. A monopoly:
A) produces a product with no close substitutes.
B) is composed of a single buyer and several sellers.
C) is composed of a large number of small firms.
D) is composed of a small number of large firms.
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10. De Beers became a monopoly by:
A) establishing control over diamond mines.
B) use of economies of scale.
C) use of technological superiority.
D) ownership of a patent.
11. A monopolist is likely to produce _____ and charge _____ than a comparable perfectly
competitive firm.
A) more; more
B) less; more
C) more; less
D) less; less
14. The ability of a monopolist to raise the price of a product above the competitive level by
reducing the output is known as:
A) product differentiation.
B) barrier to entry.
C) market power.
D) patents and copyrights.
15. Most electric, gas, and water companies are examples of:
A) unregulated monopolies.
B) natural monopolies.
C) restricted-input monopolies.
D) sunk-cost monopolies.
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16. Suppose that you build a high-speed, magnetically powered transportation system from
New York to Los Angeles, and you are the only firm providing this service. High fixed
costs resulting from the enormous quantity of capital used in this system enable
decreasing average cost for any conceivable level of demand. Your monopoly would
result from:
A) control of a scarce resource or input.
B) technological superiority.
C) increasing returns to scale.
D) government-set barriers.
17. If your farm had the only known source of a rare cocoa bean needed to make chocolate-
covered peanuts, your monopoly would result from:
A) control of a scarce resource or input.
B) technological superiority.
C) increasing returns to scale.
D) government-set barriers.
18. If you had a license for the exclusive right to sell breakfast bagels in your community,
your monopoly would result from:
A) control of a scarce resource or input.
B) technological superiority.
C) increasing returns to scale.
D) government-set barriers.
20. You own a lemonade stand in a competitive market, and as such, you are a price-taking
firm. Which of the following events would most likely increase your market power?
A) The government abolishes the system of patents and copyrights.
B) A booming economy increases the demand for lemonade and attracts entry into the
market.
C) The average total cost curve for firms in the industry is horizontal.
D) You own exclusive rights to harvest lemons from all domestic citrus orchards.
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21. Conditions that keep new firms out of a monopoly market are:
A) barriers to entry.
B) terms of sale.
C) labor market stipulations.
D) production controls.
23. Natural monopolies are likely to include all of the following EXCEPT:
A) a diamond mining company.
B) a gas company.
C) an electricity company.
D) railways.
24. Suppose that you build a new jumbo jet that can carry five times more passengers than
any other competitor. You have high fixed costs due to the quantity of capital used to
build the jets, and average cost is decreasing for all levels of demand. In this case, your
monopoly would result from:
A) sunk costs.
B) location.
C) economies of scale.
D) government restrictions.
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26. The land you own has the only known source of aloe needed to make anti-itch lotion. In
this case, your monopoly results from:
A) government restrictions.
B) location.
C) sunk costs.
D) ownership of scarce inputs.
27. If the state government gave you the exclusive right to sell cement to municipalities,
your monopoly would result from:
A) sunk costs.
B) government restrictions to entry.
C) economies of scale.
D) location.
28. A monopoly is most likely to be temporary if the monopoly power is derived from:
A) high barriers to entry.
B) a lack of substitutes for the monopolist's product.
C) economies of scale.
D) technological change.
31. Critics of the National Collegiate Athletic Association (NCAA) argue that the NCAA
monopolizes college athletics and prevents student–athletes from earning money while
in college. If this is true, what type of entry barrier does the NCAA have?
A) a patent
B) a copyright
C) control of a scarce resource or input
D) economies of scale
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32. Lenoia runs a natural monopoly producing electricity for a small mountain village. The
barrier preventing other firms from competing with her is:
A) her control of scarce natural resources.
B) economies of scale.
C) her technological superiority.
D) a government-set barrier.
34. Microsoft and its operating system are often cited as an example of a company that grew
into a monopolist through:
A) ownership of a resource.
B) patents.
C) network externalities.
D) large economies of scale.
35. Network externalities exist when a good's value to the consumer rises as:
A) the number of people who use the good increases.
B) the number of people who use the good decreases.
C) the number of people who use the good remains constant.
D) technology improves.
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38. The demand curve facing a monopolist is:
A) horizontal, the same as that facing a perfectly competitive firm.
B) downward-sloping, the same as that facing a perfectly competitive firm.
C) upward-sloping, the same as that facing a perfectly competitive firm.
D) downward-sloping, unlike the horizontal demand curve facing a perfectly
competitive firm.
43. Wendy has a monopoly in the retailing of motor homes. She can sell five per week at
$21,000 each. If she wants to sell six, she can charge only $20,000 each. The quantity
effect of selling the sixth motor home is:
A) $20,000.
B) $10,000.
C) $15,000.
D) $21,000.
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44. Wendy has a monopoly in the retailing of motor homes. She can sell five per week at
$21,000 each. If she wants to sell six, she can only charge $20,000 each. The price
effect of selling the sixth motor home is:
A) $20,000.
B) –$15,000.
C) –$5,000.
D) $25,000.
45. After the first unit sold, the marginal revenue a monopolist receives from selling one
more unit of a good is less than the price of that unit because of:
A) diminishing marginal returns.
B) increasing marginal cost.
C) a downward-sloping demand curve.
D) declining average fixed cost.
46. Mr. Porter sells 10 bottles of champagne per week at $50 per bottle. He can sell 11
bottles per week if he lowers the price to $45 per bottle. The quantity and the price
effects on total revenue would be, respectively, an increase of _____ and a decrease of
_____.
A) $450; $500
B) $495; $550
C) $45; $5
D) $45; $50
47. One of the major differences between a monopolist and a purely competitive firm is that
the monopolist has a _____ demand curve, while the purely competitive firm has a
_____ demand curve.
A) downward-sloping; perfectly elastic
B) perfectly inelastic; perfectly elastic
C) downward-sloping; perfectly inelastic
D) perfectly elastic; downward-sloping
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49. Suppose that a monopoly computer chip maker increases production from 10
microchips to 11 microchips. If the market price declines from $30 per unit to $29 per
unit, marginal revenue for the eleventh unit is:
A) $1.
B) $9.
C) $19.
D) $29.
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55. The demand curve facing a monopolist is always:
A) the same as the industry's demand curve.
B) perfectly elastic.
C) unit-elastic.
D) perfectly inelastic.
60. A monopolist's marginal cost curve shifts up, but the firm's demand curve remains the
same and the firm does not shut down. Compared to the condition before the increase in
marginal costs, the monopolist will _____ its price and _____ its level of production.
A) raise; decrease
B) not change; decrease
C) raise; increase
D) lower; increase
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61. Suppose a monopoly is producing output so that marginal revenue equals marginal cost.
If the monopolist reduces output, it:
A) can charge a higher price.
B) will increase profits.
C) will decrease marginal revenue.
D) can charge a higher price and it will increase profits.
63. A monopoly is producing output so that average total cost is $30, marginal revenue is
$40, and the price is $50. If ATC is at its minimum level and the ATC curve is U-shaped,
to maximize profits this firm should:
A) increase output.
B) reduce output.
C) do nothing; it is already maximizing profits.
D) shut down.
65. If a monopolist is producing a quantity that generates MC > MR, then profit:
A) is maximized.
B) is maximized only if MC = P.
C) can be increased by increasing production.
D) can be increased by decreasing production.
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67. A monopolist responds to an increase in demand by _____ price and _____ output.
A) increasing; decreasing
B) increasing; increasing
C) decreasing; increasing
D) decreasing; decreasing
68. A monopolist responds to a decrease in demand by _____ price and _____ output.
A) increasing; decreasing
B) increasing; increasing
C) decreasing, increasing
D) decreasing; decreasing
69. A monopolist responds to an increase in marginal cost by _____ price and _____ output.
A) increasing; decreasing
B) increasing; increasing
C) decreasing; increasing
D) decreasing; decreasing
70. A monopoly responds to a decrease in marginal cost by _____ price and _____ output.
A) increasing; decreasing
B) increasing; increasing
C) decreasing; increasing
D) decreasing; decreasing
71. The GoSports Company is a profit-maximizing firm with a monopoly in the production
of school team pennants. The firm sells its pennants for $10 each. We can conclude that
GoSports is producing a level of output at which:
A) average total cost equals $10.
B) average total cost is greater than $10.
C) marginal revenue equals $10.
D) marginal cost equals marginal revenue.
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73. Suppose that a profit-maximizing monopoly firm undergoes a substantial technological
change that reduces its marginal and average total costs by $40. If in response to its
reduction in cost the firm changes its price in a profit-maximizing way, then we can
predict that its total output will:
A) rise.
B) fall.
C) remain unchanged.
D) It is not possible to make a determination from the information given.
74. Suppose that a monopoly firm is required to pay a new annual license fee to do business
in its city and that the fee is somewhat less than the economic profit the firm is now
earning. In response to the increase in fees, the firm will:
A) raise its price by less than the amount of the license fee.
B) raise its price by the amount of the license fee.
C) raise its price by somewhat more than amount of the license fee.
D) not change its price.
75. An increase in the fixed costs of a monopoly firm would _____ price and _____
quantity in the short run.
A) increase; decrease
B) increase; increase
C) not change; not change
D) decrease; decrease
76. If a monopolist is producing a quantity that generates MC > MR, then profit:
A) is maximized.
B) is maximized only if MC = P.
C) can be increased by increasing price.
D) can be increased by decreasing price.
77. If a monopolist is producing a quantity that generates MC < MR, then profit:
A) is maximized.
B) is maximized only if MC = P.
C) can be increased by increasing production.
D) can be increased by decreasing production.
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78. If a monopolist is producing a quantity that generates MC = MR, then profit:
A) is maximized.
B) is maximized only if MC = P.
C) can be increased by increasing production.
D) can be increased by decreasing production.
79. Suppose that the Yankee Cap Company is a profit-maximizing firm with a monopoly in
the production of baseball caps. The firm sells its baseball caps for $25 each. For this
information, we can assume that the Yankee Cap Company is producing a level of
output at which:
A) marginal revenue equals $25.
B) marginal cost equals marginal revenue.
C) average total cost equals $25.
D) average total cost is greater than $25.
80. (Figure: Short-Run Monopoly) Look at the figure Short-Run Monopoly. The profit-
maximizing rule is satisfied by the intersection at point:
A) G.
B) H.
C) J.
D) L.
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81. (Figure: Short-Run Monopoly) Look at the figure Short-Run Monopoly. The profit-
maximizing quantity of output is quantity:
A) Q.
B) R.
C) S.
D) T.
82. (Figure: Short-Run Monopoly) Look at the figure Short-Run Monopoly. The profit-
maximizing price is price:
A) N.
B) O.
C) P.
D) Q.
83. (Figure: Short-Run Monopoly) Look at the figure Short-Run Monopoly. The marginal
cost of producing the profit-maximizing quantity is cost:
A) N.
B) O.
C) P.
D) Q.
86. Bob owns a trout farm with monopoly power in North Carolina. Bob's optimal output
occurs where marginal revenue _____. Because of monopoly power, Bob's supply curve
_____.
A) equals marginal cost; does not exist
B) exceeds marginal cost; does not exist
C) equals marginal cost; is upward-sloping
D) exceeds marginal cost; is perfectly inelastic
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87. Which of the following statements about monopoly equilibrium and perfectly
competitive equilibrium is INCORRECT?
A) Price is greater than marginal cost in monopoly, and price equals marginal cost in
perfect competition.
B) When a monopoly exists, the consumer surplus is less than if the market were
perfectly competitive.
C) Monopoly output will be less than the output of a comparable perfectly competitive
industry.
D) In the long run, economic profits are driven to zero in both a monopoly and a
perfectly competitive market.
88. (Figure: Perfect Competition) Look at the figure Perfect Competition. A perfectly
competitive industry's total output is given by the intersection of:
A) marginal revenue and marginal cost.
B) demand and marginal cost.
C) demand and marginal revenue.
D) marginal revenue and average total cost.
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90. In perfect competition, the firm produces the output such that _____, and in monopoly,
the firm produces the output such that _____.
A) P > MR = MC; P = MR = MC
B) P = MR = MC; P < MR = MC
C) P = MR = MC; P > MR = MC
D) P = MR = MC; P = MR = MC
93. Assume a monopoly is currently earning economic profits. If a change in fixed cost
raises average total cost above the demand curve:
A) price and output will remain unchanged.
B) more monopolies will enter.
C) the monopoly will go out of business.
D) marginal cost will be greater than marginal revenue.
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Use the following to answer questions 94-97:
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96. (Figure: A Profit-Maximizing Monopoly Firm) Look at the figure A Profit-Maximizing
Monopoly Firm. This firm's price per unit is:
A) $20.
B) $25.
C) $30.
D) $35.
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100. (Table: Demand and Total Cost) Look at the table Demand and Total Cost. Lenoia runs
a natural monopoly producing electricity for a small mountain village. The table shows
Lenoia's demand and total cost of producing electricity. The price effect of increasing
production from 3 megawatts to 4 megawatts is:
A) –$150.
B) $500.
C) $450.
D) –$50.
101. (Table: Demand and Total Cost) Look at the table Demand and Total Cost. Lenoia runs
a natural monopoly firm producing electricity for a small mountain village. The table
shows Lenoia's demand and total cost of producing electricity. To maximize profits,
Lenoia should charge a price of:
A) $350.
B) $400.
C) $450.
D) $500.
102. (Table: Demand and Total Cost) Look at the table Demand and Total Cost. Lenoia runs
a natural monopoly producing electricity for a small mountain village. The table shows
Lenoia's demand and total cost of producing electricity. The marginal revenue of the
fourth unit of production is:
A) $200.
B) $250.
C) $450.
D) $500.
103. (Table: Demand and Total Cost) Look at the table Demand and Total Cost. Lenoia runs
a natural monopoly producing electricity for a small mountain village. The table shows
Lenoia's demand and total cost of producing electricity. The profit-maximizing quantity
of electricity for her to produce is _____ megawatts.
A) 2
B) 3
C) 4
D) 5
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104. (Table: Demand and Total Cost) Look at the table Demand and Total Cost. Lenoia runs
a natural monopoly producing electricity for a small mountain village. The
accompanying table shows Lenoia's demand and total cost of producing electricity. The
maximum profit Lenoia can make is:
A) $225.
B) $425.
C) $400.
D) $1,800.
105. If a monopoly has a linear demand curve and is producing at the profit-maximizing level
of output, at that level of output, demand is:
A) price-elastic.
B) price-inelastic.
C) perfectly price-inelastic.
D) price unit-elastic.
106. In 1999, a judge declared that Microsoft was a monopolist. Assuming that Microsoft has
a linear demand curve and that it is maximizing its profits at its current level of output,
we may conclude that if Microsoft were to increase its price, its total revenue would:
A) rise.
B) fall.
C) remain unchanged.
D) There is insufficient information to make a determination.
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Use the following to answer questions 107-110:
107. (Figure: Computing Monopoly Profit) Look at the figure Computing Monopoly Profit.
The profit-maximizing price is _____ and will generate total economic profit of _____.
A) P2; EF
B) P3; the rectangle P1P2FG
C) P3; the rectangle P2P3EF
D) P3; EF
108. (Figure: Computing Monopoly Profit) Look at the figure Computing Monopoly Profit.
Producing at point N would:
A) result in MR = MC.
B) result in positive economic profits.
C) never be profit-maximizing, since at this output MR < 0 and MC > 0.
D) result in the firm breaking even.
109. (Figure: Computing Monopoly Profit) Look at the figure Computing Monopoly Profit.
At the profit-maximizing output, total cost is:
A) P10QG.
B) P30QE.
C) P20QF.
D) FQ2.
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110. (Figure: Computing Monopoly Profit) Look at the figure Computing Monopoly Profit.
To obtain maximum profits, the monopoly should produce the output determined by
point:
A) G.
B) N.
C) H.
D) K.
111. (Figure: Monopoly Model) Look at the figure Monopoly Model. The profit-maximizing
quantity is at point:
A) W.
B) J.
C) K.
D) L.
112. (Figure: Monopoly Model) Look at the figure Monopoly Model. The profit-maximizing
price is:
A) Z.
B) P.
C) S.
D) I.
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113. (Figure: Monopoly Model) Look at the figure Monopoly Model. When the firm is in
equilibrium (that is, maximizing its economic profit), its total cost is the area of
rectangle:
A) 0PDJ.
B) 0IHJ.
C) IPDH.
D) 0SBJ.
114. (Figure: Monopoly Model) Look at the figure Monopoly Model. When the firm is in
equilibrium (that is, maximizing its economic profit), its total revenue is the area of
rectangle:
A) SPDB.
B) IPDH.
C) 0SBJ.
D) 0PDJ.
115. (Figure: Monopoly Model) Look at the figure Monopoly Model. When the firm is in
equilibrium (that is, maximizing its economic profit), its profit is the area of rectangle:
A) SPDB.
B) IPDH.
C) ISBH.
D) 0PDJ.
116. (Figure: Monopoly Model) Look at the figure Monopoly Model. When the firm is in
equilibrium (that is, maximizing its economic profit), its total cost is the area of
rectangle _____ and its total revenue is the area of rectangle _____.
A) 0PDJ; SPDB
B) 0IHJ; IPDH
C) IPDH; 0SBJ
D) 0SBJ; 0PDJ
117. Suppose the GoSports pennant monopoly is broken up and the pennant industry
becomes perfectly competitive. We would expect the _____ to increase and _____ to
decrease after the breakup.
A) producer surplus; consumer surplus and total surplus
B) consumer surplus; producer surplus and total surplus
C) consumer surplus and total surplus; producer surplus
D) producer surplus and total surplus; consumer surplus
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118. If the government allowed only one airline to serve the entire U.S. market, there would
be a _____ loss associated with _____ efficiency in the airline industry.
A) marginal; reduced
B) deadweight; reduced
C) total; increased
D) deadweight; increased
120. In monopoly:
A) a basic condition for efficiency is violated because P > MC.
B) consumers are confronted with a price that is lower than marginal cost.
C) consumers will buy more of the good than is economically efficient.
D) consumers are confronted with a price that is lower than average total cost.
121. The pricing in monopoly prevents some mutually beneficial trades. The value of these
unrealized mutually beneficial trades is called:
A) sunk costs.
B) opportunity costs.
C) deadweight loss.
D) inequity.
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123. Suppose a perfectly competitive market is suddenly transformed into one that operates
as a monopoly market. We would expect price to _____, output to _____, consumer
surplus to _____, producer surplus to _____, and deadweight loss to _____.
A) rise; fall; rise; rise; fall
B) rise; fall; fall; fall; rise
C) rise; fall; fall; rise; rise
D) fall; rise; rise; fall; fall
125. When a monopoly maximizes profit, the loss of surplus by consumers is _____ the
monopolist's gain in profit.
A) less than
B) equal to
C) more than
D) sometimes more than and sometimes less than
Figure: PPV
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126. (Figure: PPV) Look at the figure PPV, which shows the demand and marginal revenue
for a pay-per-view football game on cable TV. Assume that the marginal cost and
average cost are a constant $20. If the cable company is in a perfectly competitive
industry, how many subscriptions will it sell?
A) 2
B) 4
C) 6
D) 8
127. (Figure: PPV) Look at the figure PPV, which shows the demand and marginal revenue
for a pay-per-view football game on cable TV. Assume that the marginal cost and
average cost are a constant $20. If the cable company is in a perfectly competitive
industry, what price will it charge?
A) $20
B) $40
C) $60
D) $100
128. (Figure: PPV) Look at the figure PPV, which shows the demand and marginal revenue
for a pay-per-view football game on cable TV. Assume that the marginal cost and
average cost are a constant $20. If the cable company is in a perfectly competitive
industry, how much is consumer surplus?
A) $0
B) $320
C) $160
D) $500
129. (Figure: PPV) Look at the figure PPV, which shows the demand and marginal revenue
for a pay-per-view football game on cable TV. Assume that the marginal cost and
average cost are a constant $20. If the cable company is in a perfectly competitive
industry, how much is producer surplus?
A) $0
B) $320
C) $160
D) $500
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130. (Figure: PPV) Look at the figure PPV, which shows the demand and marginal revenue
for a pay-per-view football game on cable TV. Assume that the marginal cost and
average cost are a constant $20. If the cable company is in a perfectly competitive
industry, how much is deadweight loss?
A) $0
B) $320
C) $160
D) $500
131. (Figure: PPV) Look at the figure PPV, which shows the demand and marginal revenue
for a pay-per-view football game on cable TV. Assume that the marginal cost and
average cost are a constant $20. If the cable company is a monopoly, how much will it
produce?
A) 2
B) 4
C) 6
D) 8
132. (Figure: PPV) Look at the figure PPV, which shows the demand and marginal revenue
for a pay-per-view football game on cable TV. Assume that the marginal cost and
average cost are a constant $20. If the cable company is a monopoly, what price will it
charge?
A) $20
B) $40
C) $60
D) $100
133. (Figure: PPV) Look at the figure PPV, which shows the demand and marginal revenue
for a pay-per-view football game on cable TV. Assume that the marginal cost and
average cost are a constant $20. If the cable company is a monopoly, how much is
consumer surplus when the monopolist maximizes profit?
A) $20
B) $40
C) $80
D) $160
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134. (Figure: PPV) Look at the figure PPV, which shows the demand and marginal revenue
for a pay-per-view football game on cable TV. Assume that the marginal cost and
average cost are a constant $20. If the cable company is a monopoly, how much is
producer surplus when the monopolist maximizes profit?
A) $0
B) $20
C) $80
D) $160
135. (Figure: PPV) Look at the figure PPV, which shows the demand and marginal revenue
for a pay-per-view football game on cable TV. Assume that the marginal cost and
average cost are a constant $20. If the cable company is a monopoly, how much is
deadweight loss when the monopolist maximizes profit?
A) $0
B) $20
C) $80
D) $160
136. (Figure: PPV) Look at the figure PPV, which shows the demand and marginal revenue
for a pay-per-view football game on cable TV. Assume that the marginal cost and
average cost are a constant $20. If the cable company is a monopoly, how much is total
surplus when the monopolist maximizes profit?
A) $240
B) $160
C) $100
D) $320
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137. (Table: Lunch) Look at the figure Lunch. Joe makes and sells picnic lunches to people
taking all-day rafting trips on the river. The marginal cost and average cost of each
lunch are a constant $4. If Joe is one of many firms in a competitive industry, how many
lunches will he produce in the long run?
A) 0
B) 20
C) 40
D) 60
138. (Table: Lunch) Look at the figure Lunch. Joe makes and sells picnic lunches to people
taking all-day rafting trips on the river. The marginal cost and average cost of each
lunch are a constant $4. If Joe is one of many firms in a competitive industry, what price
will he charge for a lunch in the long run?
A) $10
B) $8
C) $6
D) $4
139. (Table: Lunch) Look at the figure Lunch. Joe makes and sells picnic lunches to people
taking all-day rafting trips on the river. The marginal cost and average cost of each
lunch are a constant $4. If Joe is one of many firms in a competitive industry, what is
consumer surplus in the long run?
A) $4
B) $10
C) $180
D) $360
140. (Table: Lunch) Look at the figure Lunch. Joe makes and sells picnic lunches to people
taking all-day rafting trips on the river. The marginal cost and average cost of each
lunch are a constant $4. If Joe is one of many firms in a competitive industry, what is
producer surplus in the long run?
A) $0
B) $4
C) $180
D) $360
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141. (Table: Lunch) Look at the figure Lunch. Joe makes and sells picnic lunches to people
taking all-day rafting trips on the river. The marginal cost and average cost of each
lunch are a constant $4. If Joe is one of many firms in a competitive industry, what is
deadweight loss in the long run?
A) $0
B) $4
C) $180
D) $360
142. (Table: Lunch) Look at the figure Lunch. Joe makes and sells picnic lunches to people
taking all-day rafting trips on the river. The marginal cost and average cost of each
lunch are a constant $4. If Joe is a monopolist, how many lunches will he produce in the
long run?
A) 0
B) 10
C) 20
D) 30
143. (Table: Lunch) Look at the figure Lunch. Joe makes and sells picnic lunches to people
taking all-day rafting trips on the river. The marginal cost and average cost of each
lunch are a constant $4. If Joe is a monopolist, what price will he charge for a lunch in
the long run?
A) $9
B) $7
C) $5
D) $3
144. (Table: Lunch) Look at the figure Lunch. Joe makes and sells picnic lunches to people
taking all-day rafting trips on the river. The marginal cost and average cost of each
lunch are a constant $4. If Joe is a monopolist, what is consumer surplus in the long
run?
A) $45
B) $90
C) $180
D) $360
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145. (Table: Lunch) Look at the figure Lunch. Joe makes and sells picnic lunches to people
taking all-day rafting trips on the river. The marginal cost and average cost of each
lunch are a constant $4. If Joe is a monopolist, what is producer surplus in the long run?
A) $45
B) $90
C) $180
D) $360
146. (Table: Lunch) Look at the figure Lunch. Joe makes and sells picnic lunches to people
taking all-day rafting trips on the river. The marginal cost and average cost of each
lunch are a constant $4. If Joe is a monopolist, what is deadweight loss in the long run?
A) $45
B) $90
C) $180
D) $360
148. Public policies toward monopoly in the United States often consist of:
A) laws outlawing all of them.
B) the regulation of natural monopolies.
C) government takeover if monopoly profit exceeds a certain level.
D) forcing monopoly industries to become perfectly competitive.
149. Amtrak is a publicly owned company that provides rail service. This means that
Amtrak's prices tend to be _____ than if it were a private company, and the quality of
service tends to be _____ than if it were a private company.
A) higher; worse
B) higher; better
C) lower; worse
D) lower; better
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150. In an industry characterized by extensive economies of scale:
A) small companies are more profitable than large companies.
B) large companies are more profitable than small companies.
C) small and large companies are equally profitable.
D) small companies will drive out large companies.
152. One government policy for dealing with natural monopoly is to:
A) impose a price floor to eliminate the deadweight loss.
B) impose a price ceiling to reduce economic profit.
C) break it up into smaller firms.
D) impose fines on the monopolist.
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153. (Figure: Total Surplus with a Regulated Natural Monopoly) Look at the figure Total
Surplus with a Regulated Natural Monopolist. The natural monopoly:
A) would incur an economic profit if regulated to produce where price is less than
marginal cost.
B) would incur an economic profit if regulated to charge a price equal to average total
cost.
C) generates more consumer surplus than an unregulated monopolist if regulated to
produce where price equals average total cost.
D) generates more consumer surplus than an unregulated monopolist if regulated to
produce where price is above the average total cost.
154. If the regulation of a monopoly results in a price equal to marginal cost but the price is
below average total cost:
A) the firm can still make an economic profit.
B) the firm will earn only a zero economic profit.
C) efficiency in allocation will be less.
D) the firm will need subsidies to stay in business.
155. In the short run, if a monopoly is forced to charge a price equal to marginal cost:
A) output will fall.
B) the deadweight loss will decrease.
C) consumer surplus will decrease.
D) other firms will enter the industry.
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Use the following to answer questions 156-167:
156. (Figure: Water Works) Look at the figure Water Works, which describes a small town's
water works, a natural monopoly. If the water works is unregulated and maximizes
profit, how many customers will it serve?
A) 200
B) 300
C) 375
D) 400
157. (Figure: Water Works) Look at the figure Water Works, which describes a small town's
water works, a natural monopoly. If the water works is unregulated and maximizes
profit, what price will it charge to each customer?
A) $21
B) $13
C) $6
D) $5
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158. (Figure: Water Works) Look at the figure Water Works, which describes a small town's
water works, a natural monopoly. If the water works is unregulated and maximizes
profit, consumer surplus will be:
A) $6,400.
B) $3,200.
C) $1,600.
D) $800.
159. (Figure: Water Works) Look at the figure Water Works, which describes a small town's
water works, a natural monopoly. If the water works is unregulated and maximizes
profit, how much profit will it earn?
A) $1,600
B) $1,400
C) $1,000
D) $800
160. (Figure: Water Works) Look at the figure Water Works, which describes a small town's
water works, a natural monopoly. If regulators want to maximize efficiency, the
monopolist will be allowed to charge a price of:
A) $5.
B) $6.
C) $13.
D) $21.
161. (Figure: Water Works) Look at the figure Water Works, which describes a small town's
water works, a natural monopoly. If regulators require the water works to charge the
price that eliminates deadweight loss, the water works will serve _____ customers.
A) 200
B) 300
C) 375
D) 400
162. (Figure: Water Works) Look at the figure Water Works, which describes a small town's
water works, a natural monopoly. If regulators require the water works to charge the
price that eliminates deadweight loss, the water works will:
A) earn profits.
B) break even.
C) incur losses.
D) have a large producer surplus.
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163. (Figure: Water Works) Look at the figure Water Works, which describes a small town's
water works, a natural monopoly. If regulators require the water works to charge the
price that eliminates deadweight loss, consumer surplus will be:
A) $3,200.
B) $1,400.
C) $1,000.
D) $800.
164. (Figure: Water Works) Look at the figure Water Works, which describes a small town's
water works, a natural monopoly. If regulators want the monopolist to cover average
total cost, the monopolist will be allowed to charge a price of:
A) $5.
B) $6.
C) $13.
D) $21.
165. (Figure: Water Works) Look at the figure Water Works, which describes a small town's
water works, a natural monopoly. If regulators allow the monopolist to charge a price
that just covers average total cost, the water works will serve _____ customers.
A) 200
B) 300
C) 375
D) 400
166. (Figure: Water Works) Look at the figure Water Works, which describes a small town's
water works, a natural monopoly. If regulators require the water works to charge the
price that just covers average total cost, the water works will:
A) earn profits.
B) break even.
C) incur losses.
D) have a large producer surplus.
167. (Figure: Water Works) Look at the figure Water Works, which describes a small town's
water works, a natural monopoly. If regulators allow the water works to charge the price
that covers average total costs, consumer surplus will be:
A) $1,600.
B) $1,400.
C) $1,000.
D) $2,812.50.
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Use the following to answer questions 168-171:
168. (Figure: Demand, Revenue, and Cost Curves) Look at the figure Demand, Revenue, and
Cost Curves. Figglenuts-R-Us is a monopolist in the figglenut market. Figglenuts-R-Us
will sell _____ figglenuts and set a price of _____ to maximize profits.
A) 70; $65
B) 100; $50
C) 120; $40
D) 150; $46
169. (Figure: Demand, Revenue, and Cost Curves) Look at the figure Demand, Revenue, and
Cost Curves. Figglenuts-R-Us is a monopolist in the figglenut market. If the government
wanted to regulate Figglenuts-R-Us such that the entire deadweight loss would be
eliminated in the short run, it would impose a price ceiling of:
A) $40.
B) $46.
C) $50.
D) $65.
170. (Figure: Demand, Revenue, and Cost Curves) Look at the figure Demand, Revenue, and
Cost Curves. Figglenuts-R-Us is a monopolist in the figglenut market. If the government
wanted to regulate Figglenuts-R-Us such that it would minimize the deadweight loss
while allowing the firm to break even, it would impose a price ceiling of :
A) $40.
B) $46.
C) $50.
D) $65.
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171. (Figure: Demand, Revenue, and Cost Curves) Look at the figure Demand, Revenue, and
Cost Curves. Figglenuts-R-Us is a monopolist in the figglenut market. If the government
regulated the figglenut market by setting a price ceiling of $40, Figglenuts-R-Us might:
A) produce 60 figglenuts to maximize profit.
B) produce 120 figglenuts to maximize profit.
C) shut down in the long run.
D) increase the price to $60.
172. The practice of charging different prices to different customers for the same good or
service, even though the cost of supplying those customers is the same, is:
A) privatization.
B) monopolization.
C) output competition.
D) price discrimination.
174. The practice of selling the same product at different prices to different consumers,
without corresponding differences in costs, is:
A) price discrimination.
B) privatizing.
C) monopolizing.
D) output prioritizing.
175. If a firm wants to charge different customers different prices, it must be:
A) a price taker.
B) in perfect competition.
C) a price setter.
D) a price setter in perfect competition.
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176. _____ is the practice of selling _____ product(s) at different prices to different
consumers, without corresponding differences in costs.
A) Price discrimination; the same
B) Privatizing; the same
C) Monopolizing; similar
D) Price fixing; different
177. Price discrimination can occur in all of the following market structures EXCEPT:
A) perfect competition.
B) monopolistic competition.
C) oligopoly.
D) monopoly.
179. When price discrimination occurs, the producer's profit is _____ if the producer charges
each customer the same profit-maximizing price where marginal revenue equals _____
cost.
A) the same as; marginal
B) more than; marginal
C) less than; marginal
D) the same as; average total
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182. The main reason a monopoly engages in price discrimination is that:
A) it wants to discriminate against a particular ethnic group.
B) doing so increases its profits.
C) it wants to discourage potential competitors.
D) by charging a lower price to some people, it may succeed in discouraging efforts to
regulate it.
187. Price discrimination leads to a _____ price for consumers with a _____ demand.
A) higher; less elastic
B) higher; more elastic
C) higher; perfectly elastic
D) lower; less elastic
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188. Price discrimination leads to a _____ price for consumers with a _____ demand.
A) higher; more elastic
B) higher; perfectly elastic
C) lower; more elastic
D) lower; less elastic
189. Price-discriminating firms will impose a price structure that offers customers with a
_____ demand a _____ price and offers customers with a(n) _____ demand a _____
price.
A) less elastic; lower; more elastic; higher
B) less elastic; higher; more elastic; lower
C) lower; higher; higher; lower
D) seasonal; lower; unchanging; higher
190. Because tourist demand for airline flights is relatively _____, small _____ in ticket price
will result in relatively _____ in additional tourists.
A) inelastic; reductions; small increases
B) elastic; reductions; large increases
C) inelastic; increases; small decreases
D) elastic; increases; small increases
191. A price-discriminating firm will adjust prices so that customers with more _____
demand pay _____ than (as) customers with _____ elastic demand.
A) inelastic; less; less
B) elastic; less; less
C) elastic; the same; more
D) elastic; more; less
192. The city bus system charges lower fares to senior citizens than to other passengers.
Assuming that this pricing strategy increases the profits of the bus system, we can
conclude that senior citizens must have a _____ demand for bus service than other
passengers.
A) greater
B) lower
C) more elastic
D) less elastic
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193. The municipal swimming pool charges lower entrance fees to local residents than to
nonresidents. Assuming that this pricing strategy increases the profits of the pool, we
can conclude that nonresidents must have a _____ demand for swimming at the pool
than residents.
A) greater
B) lower
C) more elastic
D) less elastic
195. To maximize profits, an airline will offer _____ prices to customers with _____
demand.
A) higher; inelastic
B) higher; elastic
C) lower; inelastic
D) the lowest; the least
196. Because business travelers' demand for airline flights is relatively _____, small
increases in price will result in relatively _____ decreases in additional business
travelers.
A) price-inelastic; small
B) price-elastic; large
C) price-inelastic; large
D) price-elastic; small
197. A firm that can price-discriminate should adjust prices so that customers with _____
demand pay _____ prices than (as) those with _____ demand.
A) price-inelastic; lower; elastic
B) price-inelastic; the same; elastic
C) price-elastic; lower; inelastic
D) price-elastic; higher; inelastic
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198. Amtrak charges lower fares to students than to its other passengers. This pricing strategy
increases Amtrak's profits. From this information, we can conclude that students must
have a _____ demand for Amtrak train service than other passengers.
A) more price-elastic
B) lower
C) greater
D) less price-elastic
199. A community college charges lower tuition fees to town residents than to nonresidents.
This pricing strategy increases the profits of the community college. Using this
information, we can conclude that nonresidents must have a _____ demand for
attending the community college than residents.
A) less price-elastic
B) greater
C) lower
D) more price-elastic
200. Suppose the price elasticity of demand for coffee at the CoffeeBarn equals 1.71 for
women and 0.55 for men. A successful price discrimination strategy would lead to
_____ prices for men and _____ prices for women _____.
A) lower; lower; in any circumstances
B) lower; higher; in any circumstances
C) lower; higher; as long as men can't resell drinks to women
D) higher; lower; as long as women can't resell drinks to men
201. Suppose a monopoly can separate its customers into two groups. If the monopoly
practices price discrimination, it will charge the lower price to the group with:
A) the higher price elasticity of demand.
B) the lower price elasticity of demand.
C) the fewer close substitutes.
D) The answer cannot be determined with the information given.
202. A Japanese steel firm sells steel in the United States and in Japan. Since the United
States buys steel from a number of sources, the U.S. demand for Japanese steel is more
price-elastic than the Japanese demand for Japanese steel. If the Japanese steel firm
wishes to maximize its profits, it should:
A) charge the same price in both countries (after adjusting for transportation costs).
B) charge a higher price in the United States and a lower price in Japan; otherwise it
would be accused of unfair trade practices.
C) charge a lower price in the United States and a higher price in Japan.
D) figure out which market is more profitable and sell only in that market.
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203. Airlines that engage in price discrimination charge higher prices to business travelers
because their _____ is more _____ than that of other travelers.
A) demand; elastic
B) demand; inelastic
C) supply; elastic
D) supply; inelastic
204. Airlines that engage in price discrimination charge lower prices to vacation travelers
because their _____ is more _____ than that of other travelers.
A) demand; elastic
B) demand; inelastic
C) supply; elastic
D) supply; inelastic
205. Suppose the elasticity of demand for tickets to Broadway shows is 2.0 for men and 0.3
for women. To use price discrimination to increase profits, the producers should charge
higher prices to _____ because their demand is _____.
A) men; elastic
B) men; inelastic
C) women; elastic
D) women; inelastic
206. Suppose the elasticity of demand for tickets to Broadway shows is 2.0 for men and 0.3
for women. To use price discrimination to increase profits, the producers should charge
lower prices to _____ because their demand is _____.
A) men; elastic
B) men; inelastic
C) women; elastic
D) women; inelastic
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208. Many hotel chains offer discounts to senior citizens. This is an example of _____ that is
_____ in the United States.
A) market power; illegal
B) single-price monopoly power; legal
C) price discrimination; illegal
D) price discrimination; legal
210. (Table: Prices and Demand) Look at the table Prices and Demand. Professor
Dumbledore has a monopoly on magic hats. The marginal cost of producing a hat is
$18. Suppose Dumbledore can perfectly price-discriminate. How many hats will he
produce?
A) 3
B) 4
C) 5
D) 6
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211. Sadia wants to practice price discrimination in her bakery. Which of the following
techniques should Sadia NOT use?
A) discounts for people who buy a large volume of bread
B) higher prices for people who buy bread on the day it is baked and lower prices for
people who place advance orders
C) an annual fee for customers who want to shop at a discount in her store
D) the same price for all consumers for freshly baked goods
Figure: PPV
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214. (Figure: PPV) Look at the figure PPV, which shows the demand and marginal revenue
for a pay-per-view football game on cable TV. Assume that the marginal cost and
average cost are a constant $40. If the cable company is a single-price monopoly, to
maximize profit it will sell _____ subscriptions and charge _____ per subscription.
A) 8; $20
B) 6; $40
C) 3; $70
D) 2; $80
215. (Figure: PPV) Look at the figure PPV, which shows the demand and marginal revenue
for a pay-per-view football game on cable TV. Assume that the marginal cost and
average cost are a constant $40. If the cable company is a single-price monopoly and
maximizes profit, consumer surplus will be:
A) $0.
B) $45.
C) $70.
D) $90.
216. (Figure: PPV) Look at the figure PPV, which shows the demand and marginal revenue
for a pay-per-view football game on cable TV. Assume that the marginal cost and
average cost are a constant $40. If the cable company is a single-price monopoly and
maximizes profit, producer surplus will be:
A) $0.
B) $45.
C) $70.
D) $90.
217. (Figure: PPV) Look at the figure PPV, which shows the demand and marginal revenue
for a pay-per-view football game on cable TV. Assume that the marginal cost and
average cost are a constant $40. If the cable company is a single-price monopoly and
maximizes profit, deadweight loss will be:
A) $0.
B) $45.
C) $70.
D) $90.
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218. (Figure: PPV) Look at the figure PPV, which shows the demand and marginal revenue
for a pay-per-view football game on cable TV. Assume that the marginal cost and
average cost are a constant $40. If the cable company practices perfect price
discrimination, then it will sell _____ subscriptions.
A) 10
B) 8
C) 6
D) 0
219. (Figure: PPV) Look at the figure PPV, which shows the demand and marginal revenue
for a pay-per-view football game on cable TV. Assume that the marginal cost and
average cost are a constant $40. If the cable company practices perfect price
discrimination, consumer surplus will be:
A) $180.
B) $100.
C) $40.
D) $0.
220. (Figure: PPV) Look at the figure PPV, which shows the demand and marginal revenue
for a pay-per-view football game on cable TV. Assume that the marginal cost and
average cost are a constant $40. If the cable company practices perfect price
discrimination, producer surplus will be:
A) $180.
B) $100.
C) $40.
D) $0.
221. (Figure: PPV) Look at the figure PPV, which shows the demand and marginal revenue
for a pay-per-view football game on cable TV. Assume that the marginal cost and
average cost are a constant $40. If the cable company practices perfect price
discrimination, deadweight loss will be:
A) $180.
B) $100.
C) $40.
D) $0.
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Use the following to answer questions 222-224:
222. (Figure: A Rock Climbing Shoe Monopoly) Look at the figure A Rock Climbing Shoe
Monopoly. If the firm acts to maximize profit, the firm will sell _____ pairs of shoes at
_____ per pair.
A) Q2; P1
B) Q2; P5
C) Q3; P2
D) Q4; P3
223. (Figure: A Rock Climbing Shoe Monopoly) Look at the figure A Rock Climbing Shoe
Monopoly. If the firm acts to maximize profit, the firm will earn profit equal to:
A) (P1 – P5) × Q2.
B) (P1 – P4) × Q2.
C) (P4 – P5) × Q2.
D) (P2 – P3) × Q3.
224. (Figure: A Rock Climbing Shoe Monopoly) Look at the figure A Rock Climbing Shoe
Monopoly. If the firm is regulated such that it earns zero economic profit, the firm will
sell _____ pairs of shoes at a price of _____ per pair.
A) Q1; P1
B) Q2; P1
C) Q4; P3
D) Q3; P2
Page 51
Use the following to answer questions 225-228:
225. (Table: Demand for Lenny's Coffee) Look at the table Demand for Lenny's Coffee.
Lenny's Café is the only source of coffee for hundreds of miles in any direction. If
Lenny increases the quantity sold from five cups to six, his marginal revenue will be:
A) $4.
B) $24.
C) –$1.
D) $5.
226. (Table: Demand for Lenny's Coffee) Look at the table Demand for Lenny's Coffee.
Lenny's Café is the only source of coffee for hundreds of miles in any direction. Lenny
is selling two cups of coffee. If he lowers the price and sells three cups of coffee, the
_____ effect will dominate the _____ effect, and total revenue will _____.
A) quantity; price; decrease
B) price; quantity; increase
C) price; quantity; decrease
D) quantity; price; increase
Page 52
227. (Table: Demand for Lenny's Coffee) Look at the table Demand for Lenny's Coffee.
Lenny's Café is the only source of coffee for hundreds of miles in any direction. If
Lenny's marginal cost of selling coffee is a constant $2, his profit-maximizing level of
output is _____ cups at _____ per cup.
A) four; $6
B) eight; $3
C) five; $5
D) three; $7
228. (Table: Demand for Lenny's Coffee) Look at the table Demand for Lenny's Coffee.
Lenny's Café is the only source of coffee for hundreds of miles in any direction. If
Lenny's marginal cost of selling coffee is a constant $2 and the government forces
Lenny to charge a price that eliminates deadweight loss, Lenny will charge _____ per
cup and sell _____ cups.
A) $0; 10
B) $2; 8
C) $4; 6
D) $5; 5
229. (Table: Prices and Demand) Look at the table Prices and Demand. The New Orleans
Saints have a monopoly on Saints logo hats. The marginal cost of producing a hat is
$18. How many hats should the Saints produce, and what price should the organization
charge to maximize its profits?
A) 1; $28
B) 2; $26
C) 3; $24
D) 4; $22
Page 53
230. (Table: Prices and Demand) The New Orleans Saints have a monopoly on Saints logo
hats. The marginal cost of producing a hat is $18. If the Saints increase the number of
hats they sell from four to five, their total revenue changes from _____ to _____.
A) $88; $100
B) $22; $20
C) $88; $80
D) $110; $100
231. (Table: Prices and Demand) The New Orleans Saints have a monopoly on Saints logo
hats. The marginal cost of producing a hat is $18. If the Saints increase the number of
hats they sell from four to five, the quantity effect is a(n) _____ in total revenue of
_____.
A) decrease; $20
B) increase; $20
C) decrease; $8
D) increase; $8
232. (Table: Prices and Demand) The New Orleans Saints have a monopoly on Saints logo
hats. The marginal cost of producing a hat is $18. If the Saints increase the number of
hats they sell from four to five, the price effect is a(n) _____ in total revenue of _____.
A) decrease; $20
B) increase; $20
C) decrease; $8
D) increase; $8
233. (Table: Prices and Demand) The New Orleans Saints have a monopoly on Saints logo
hats. The marginal cost of producing a hat is $18. If the Saints increase the number of
hats they sell from four to five, marginal revenue is:
A) $20.
B) $22.
C) $8.
D) $12.
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234. (Table: Prices and Demand) Look at the table Prices and Demand. The New Orleans
Saints have a monopoly on Saints logo baseball hats. The Saints sell at most one hat to
each customer, and the table shows each customer's willingness to pay. The marginal
cost of producing a hat is $18, and there are no fixed costs. How much is the Saints'
profit at the profit-maximizing output?
A) $24
B) $18
C) $12
D) $30
235. (Table: Prices and Demand) Look at the table Prices and Demand. The New Orleans
Saints have a monopoly on Saints logo hats. The marginal cost of producing a hat is
$18. How much is consumer surplus at the Saint's profit-maximizing output?
A) $24
B) $18
C) $12
D) $9
236. (Table: Prices and Demand) Look at the table Prices and Demand. The New Orleans
Saints have a monopoly on Saints logo hats. The marginal cost of producing a hat is
$18. How much is producer surplus at the Saint's profit-maximizing output?
A) $24
B) $18
C) $12
D) $9
237. (Table: Prices and Demand) Look at the table Prices and Demand. The New Orleans
Saints have a monopoly on Saints logo hats. The marginal cost of producing a hat is
$18. How much is deadweight loss at the Saint's profit-maximizing output?
A) $24
B) $18
C) $12
D) $9
Page 55
238. (Table: Prices and Demand) Look at the table Prices and Demand. The New Orleans
Saints have a monopoly on Saints logo hats. The marginal cost of producing a hat is
$18. If the Saints were a perfectly competitive firm in a perfectly competitive industry,
their profit-maximizing price and output, respectively, would be:
A) $24 and 3.
B) $30 and 0.
C) $18 and 6.
D) $8 and 6.
239. (Table: Prices and Demand) Look at the table Prices and Demand. The New Orleans
Saints have a monopoly on Saints logo hats. The marginal cost of producing a hat is
$18. If the Saints were a perfectly competitive firm in a perfectly competitive industry,
at their profit-maximizing price and output, consumer surplus would be:
A) $24.
B) $30.
C) $18.
D) $36.
240. (Table: Prices and Demand) Look at the table Prices and Demand. The New Orleans
Saints have a monopoly on Saints logo hats. The marginal cost of producing a hat is
$18. If the Saints were a perfectly competitive firm in a perfectly competitive industry,
at their profit-maximizing price and output producer surplus would be:
A) $0.
B) $12.
C) $18.
D) $24.
241. (Table: Prices and Demand) Look at the table Prices and Demand. The New Orleans
Saints have a monopoly on Saints logo hats. The marginal cost of producing a hat is
$18. If the Saints were a perfectly competitive firm in a perfectly competitive industry,
at their profit-maximizing price and output deadweight loss would be:
A) $0.
B) $12.
C) $18.
D) $24.
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242. (Table: Prices and Demand) Look at the table Prices and Demand. The New Orleans
Saints have a monopoly on Saints logo hats. The marginal cost of producing a hat is
$18. The Saints sell at most one hat to each customer, and the table shows each
customer's willingness to pay. If the Saints were a perfectly competitive firm in a
perfectly competitive industry, at their profit-maximizing price and output total surplus
would be _____. If the Saints were a profit-maximizing monopoly, at their profit-
maximizing price and output total surplus would be _____.
A) $0; $0
B) $27; $36
C) $36; $27
D) $18; $27
243. (Figure: The Profit-Maximizing Output and Price) Look at the figure The Profit-
Maximizing Output and Price. Assume there are no fixed costs and AC = MC. At the
profit-maximizing quantity of production for the monopolist, total revenue is _____,
total cost is _____, and profit is _____.
A) $600; $200; $400
B) $1,600; $3,200; $1,600
C) $4,800; $3,200; $1,600
D) $4,800; $1,600; $3,200
Page 57
244. (Figure: The Profit-Maximizing Output and Price) Look at the figure The Profit-
Maximizing Output and Price. A perfect competitor would produce at a price of _____
and output of _____ units.
A) $600; 8
B) $200; 8
C) $200; 16
D) $600; 16
245. (Figure: The Profit-Maximizing Output and Price) Look at the figure The Profit-
Maximizing Output and Price. Assume that there are no fixed costs and AC = MC =
$200. The profit-maximizing output for a monopolist is:
A) 0.
B) 8.
C) 16.
D) 20.
246. (Figure: The Profit-Maximizing Output and Price) Look at the figure The Profit-
Maximizing Output and Price. Assume that there are no fixed costs and AC = MC =
$200. The profit-maximizing price for a monopolist is:
A) $800.
B) $200.
C) $600.
D) $1,000.
247. (Figure: The Profit-Maximizing Output and Price) Look at the figure The Profit-
Maximizing Output and Price. Assume that there are no fixed costs and AC = MC =
$200. At the profit-maximizing output and price for a monopolist, consumer surplus is:
A) $0.
B) $600.
C) $1,000.
D) $1,600.
248. (Figure: The Profit-Maximizing Output and Price) Look at the figure The Profit-
Maximizing Output and Price. Assume that there are no fixed costs and AC = MC =
$200. At the profit-maximizing output and price for a monopolist, producer surplus is:
A) $3,200.
B) $6,400.
C) $1,000.
D) $1,600.
Page 58
249. (Figure: The Profit-Maximizing Output and Price) Look at the figure The Profit-
Maximizing Output and Price. Assume that there are no fixed costs and AC = MC =
$200. At the profit-maximizing output and price for a monopolist, deadweight loss is:
A) $3,200.
B) $6,400.
C) $1,000.
D) $1,600.
250. (Figure: The Profit-Maximizing Output and Price) Look at the figure The Profit-
Maximizing Output and Price. Assume that there are no fixed costs and AC = MC =
$200. At the profit-maximizing output and price for a monopolist, total surplus is:
A) $3,200.
B) $4,800
C) $1,000.
D) $1,600.
251. (Figure: The Profit-Maximizing Output and Price) Look at the figure The Profit-
Maximizing Output and Price. Assume that there are no fixed costs and AC = MC =
$200. At the profit-maximizing output and price for a perfectly competitive industry,
profit is:
A) $0.
B) $200.
C) $1,600.
D) $3,200.
252. (Figure: The Profit-Maximizing Output and Price) Look at the figure The Profit-
Maximizing Output and Price. Assume that there are no fixed costs and AC = MC =
$200. At the profit-maximizing output and price for competitor perfectly competitive
industry, consumer surplus is:
A) $0.
B) $6,400.
C) $1,600.
D) $3,200.
Page 59
253. (Figure: The Profit-Maximizing Output and Price) Look at the figure The Profit-
Maximizing Output and Price. Assume that there are no fixed costs and AC = MC =
$200. At the profit-maximizing output and price for a perfectly competitive industry,
producer surplus is:
A) $0.
B) $200.
C) $1,600.
D) $3,200.
254. (Figure: The Profit-Maximizing Output and Price) Look at the figure The Profit-
Maximizing Output and Price. Assume that there are no fixed costs and AC = MC =
$200. At the profit-maximizing output and price for a perfectly competitive industry,
deadweight loss is:
A) $0.
B) $200.
C) $1,600.
D) $3,200.
255. (Figure: The Profit-Maximizing Output and Price) Look at the figure The Profit-
Maximizing Output and Price. Assume that there are no fixed costs and AC = MC =
$200. At the profit-maximizing output and price for a perfectly competitive industry,
total surplus is:
A) $200.
B) $1,600.
C) $3,200.
D) $6,400.
256. (Figure: The Profit-Maximizing Output and Price) Look at the figure The Profit-
Maximizing Output and Price. Assume that there are no fixed costs and AC = MC =
$200. The monopolist who can use price discrimination perfectly will produce an output
of _____ diamonds.
A) 0
B) 6
C) 16
D) 20
257. Of the four market structures, the only one that is characterized by product
differentiation is oligopoly.
A) True
B) False
Page 60
258. A producer is a monopoly if it is the sole supplier of a good that has no close substitutes.
A) True
B) False
260. To maintain profits in the long run, a monopoly must be protected by barriers to the
entry of other firms into the industry.
A) True
B) False
261. A monopoly may continue to make economic profits in the long run because of the
barriers to entry.
A) True
B) False
262. The government can reduce the inefficiency associated with a monopoly through a
system of patents and copyrights.
A) True
B) False
263. A natural monopoly has small fixed costs, which allows it to produce at lower cost than
potential competitors.
A) True
B) False
264. Suppose a monopolist reduces its price in an effort to expand output. If the price effect
equals the quantity effect, then the marginal revenue will be zero.
A) True
B) False
265. The marginal revenue curve for a monopolist is always less than the price because of the
price effect.
A) True
B) False
Page 61
266. If a firm has market power, the marginal revenue curve always lies below the demand
curve.
A) True
B) False
267. A monopoly can choose the price or it can choose the quantity, but it cannot choose
price and quantity independent of each other.
A) True
B) False
269. A monopoly's short-run supply curve is its marginal cost curve above the minimum
average variable cost.
A) True
B) False
270. A monopoly's short-run marginal cost is constant at $10. This implies that its average
variable cost is also constant and equal to $10.
A) True
B) False
271. A profit-maximizing monopoly will never set price in the inelastic region of the demand
curve.
A) True
B) False
273. Compared to perfect competition, monopoly produces a net welfare gain for society.
A) True
B) False
Page 62
274. Consumer surplus in monopoly is smaller than in perfect competition.
A) True
B) False
277. When regulating a natural monopoly, the government always sets a price ceiling where
marginal cost intersects the demand curve.
A) True
B) False
278. When a natural monopoly is regulated to charge a price equal to average total cost,
consumer surplus increases, but total surplus decreases.
A) True
B) False
279. When a natural monopoly is regulated to charge a price equal to average total cost,
producer surplus decreases, but total surplus increases.
A) True
B) False
280. A natural monopoly has increasing returns to scale, so that a large producer has a
relatively low average total cost.
A) True
B) False
281. Usually when a monopoly that isn't a natural monopoly is broken up, the losses to the
producer outweigh the gains to consumers.
A) True
B) False
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282. The advantage of public ownership of a monopoly is that prices can be based on
efficiency rather than profit maximization.
A) True
B) False
284. A monopolist that charges each customer a different price based on the customer's
individual willingness to pay is called a single-price monopolist.
A) True
B) False
285. Monopolists are engaging in price discrimination when they charge all customers the
same price.
A) True
B) False
289. Although price discrimination never occurs in perfect competition, it may occur in
monopolistic competition.
A) True
B) False
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290. To practice price discrimination, the producer must have some control over the price of
the product.
A) True
B) False
291. A monopolist who practices price discrimination can increase sales but can never
increase profits above the level that would pertain if the single price was set so that
marginal revenue and marginal cost are equal.
A) True
B) False
292. For a monopolist to practice price discrimination successfully, its customers must all
have the same willingness to pay for the good.
A) True
B) False
294. When a monopolist practices price discrimination, consumer surplus will be higher than
the consumer surplus in a single-price monopoly.
A) True
B) False
295. When a monopolist practices price discrimination, producer surplus will be higher than
in a single-price monopoly.
A) True
B) False
296. When a monopolist practices price discrimination, the monopolist's profits will be lower
than in a single-price monopoly.
A) True
B) False
Page 65
297. When a monopolist practices price discrimination as opposed to setting a single price,
the monopolist increases its profits by capturing consumer surplus.
A) True
B) False
298. When a monopolist practices price discrimination as opposed to setting a single price,
the monopolist increases its profits by decreasing producer surplus.
A) True
B) False
299. When a monopolist practices price discrimination as opposed to setting a single price,
deadweight loss decreases.
A) True
B) False
300. When a monopolist practices price discrimination as opposed to setting a single price,
efficiency decreases.
A) True
B) False
301. When a monopolist practices price discrimination as opposed to setting a single price,
the monopolist sells less but increases profits.
A) True
B) False
302. When a monopolist practices price discrimination as opposed to setting a single price,
the monopolist sells more and increases profits.
A) True
B) False
303. An oligopoly that engages in price discrimination will charge higher prices to customers
with the most elastic demand.
A) True
B) False
Page 66
304. An oligopoly that engages in price discrimination will charge higher prices to customers
with the most inelastic demand.
A) True
B) False
305. Children's price elasticity of demand for hot chocolate is 0.5. Adults' price elasticity of
demand for hot chocolate is 1.5. If the concession stand selling the hot chocolate wants
to practice price discrimination, it should charge higher prices to adults.
A) True
B) False
306. Children's price elasticity of demand for hot chocolate is 0.5. Adults' price elasticity of
demand for hot chocolate is 1.5. If the concession stand selling the hot chocolate wants
to practice price discrimination, it should charge higher prices to adults.
A) True
B) False
307. A monopolist who engages in perfect price discrimination charges each consumer a
price equal to the consumer's willingness to pay.
A) True
B) False
309. Consumer surplus is higher under a single-price monopoly than under a perfectly price-
discriminating monopoly.
A) True
B) False
310. If the local phone company, a monopolist, perfectly price-discriminated, it would have
lower total surplus than a monopolist that doesn't use price discrimination.
A) True
B) False
Page 67
311. If a monopoly can engage in perfect price discrimination, then its marginal revenue is
equal to price, in contrast to the usual situation for a monopoly, in which price is higher
than marginal revenue.
A) True
B) False
312. What are the fundamental differences between the perfect competition and monopoly
market structures?
313. What makes a natural monopoly a distinct form of monopoly? Use an example of a
natural monopoly in your explanation.
314. Years ago, Callaway Golf patented its signature Big Bertha line of drivers. Today the
company spends a lot of money prosecuting individuals that try to sell knock-off Big
Bertha drivers to the public. What is the purpose of the patent, and why do companies
like Callaway Golf fight those that try to imitate their products?
315. Why is the demand curve for a monopolist downward-sloping, while the demand curve
for the perfectly competitive firm is horizontal?
316. Explain why the marginal revenue curve lies below the monopolist's demand curve.
317. It is often said that the monopolist will never set the price in the inelastic range of the
demand curve. Why?
Page 68
Use the following to answer questions 320-321:
320. (Table: Demand for Economics Tutoring) Look at the table Demand for Economics
Tutoring. Suppose Eric is the only economics tutor in town and therefore holds a
monopoly. Eric can offer additional hours of tutoring at a constant marginal cost of $2
per hour, and he has no fixed costs.
A) If Eric acts as a monopolist, how many hours will he offer and what price will he
charge?
B) Calculate Eric's monopoly profit.
321. (Table: Demand for Economics Tutoring) Look at the table Demand for Economics
Tutoring. Suppose Eric is the only economics tutor in town. Eric can offer additional
hours of tutoring at a constant marginal cost of $2 per hour, and he has no fixed costs.
Suppose Eric can perfectly price-discriminate by charging his customers exactly their
willingness to pay. How many hours will he offer, and how much profit will he earn by
price-discriminating?
Page 69
324. Entry barriers:
A) exist in all market structures.
B) exist in perfect competition and monopolistically competitive markets.
C) do not exist in any market structures; otherwise nothing would be produced.
D) exist in monopoly and oligopoly markets.
325. Control of a scarce resource or input, economies of scale, technological superiority, and
government-set rules and regulations are forms of:
A) market structure.
B) pricing behavior.
C) barriers to entry.
D) public policy.
326. When a firm finds that its ATC of production decreases as it increases production, this
firm is said to be experiencing:
A) profit maximization.
B) economic profit.
C) economies of scale.
D) a barrier to entry.
327. If large fixed costs result in ATC falling as output increases and this occurs over the
relevant range of output, this industry is a:
A) constant-cost industry.
B) natural monopoly.
C) network externality.
D) profit maximizer.
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330. Temporary monopolies via the provision of sole ownership rights to profit from the
production, use, or sale of a good are provided by:
A) patents and copyrights.
B) natural monopolies.
C) profit-maximizing behavior.
D) network externalities.
332. For a monopolist with a downward-sloping demand curve, the quantity effect dominates
the price effect at:
A) low levels of production.
B) all levels of production.
C) high levels of production.
D) levels at which elasticity is unit-elastic.
Page 71
Use the following to answer questions 334-336:
334. (Figure: The Monopolist) Look at the figure The Monopolist. If this monopolist
attempts to profit-maximize, it will produce _____ units and sell them at _____.
A) Q1; P1
B) Q2; P4
C) Q2; P2
D) Q3; P3
335. (Figure: The Monopolist) Look at the figure The Monopolist. At the profit-maximizing
level, this monopolist will:
A) incur a loss equal to the area (P1 – P4) Q1.
B) earn a profit equal to the area (P2 – P4) Q2.
C) earn a profit equal to the area (P2 – P3) Q2.
D) break even.
336. (Figure: The Monopolist) Look at the figure The Monopolist. If this monopolist were
forced to act like a perfect competitor, it would produce _____ units and sell at _____.
A) Q1; P1
B) Q2; P2
C) Q3; P3
D) Q2; P4
Page 72
Use the following to answer questions 337-340:
Scenario: Monopolist
The demand curve for a monopolist is P = 75 – 0.5Q, and the monopolist has the following MC
expressed as P = 2Q. Assume also that ATC at the profit-maximizing level of production is equal
to $12.50.
337. (Scenario: Monopolist) Look at the scenario Monopolist. The MR curve is:
A) P = 150 – 0.5Q.
B) P = 75 – Q.
C) P = 150 – Q.
D) P = 225 – Q.
338. (Scenario: Monopolist) Look at the scenario Monopolist. The profit-maximizing output
is _____ units and the profit-maximizing price is _____.
A) 25; $75.00
B) 20; $62.50
C) 25; $75.50
D) 25; $62.50
339. (Scenario: Monopolist) Look at the scenario Monopolist. The total profit–maximizing
level of profit per unit is:
A) $62.50.
B) $0.00
C) $75.00.
D) $50.00.
340. (Scenario: Monopolist) Look at the scenario Monopolist. The deadweight loss from this
monopolist's production is:
A) $31.25.
B) $12.50.
C) $0.00
D) $30.00.
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341. If a monopolist knows its price elasticity of demand is greater than one, then a(n) _____
in price will _____ total revenue.
A) increase; increase
B) decrease; increase
C) decrease; decrease
D) increase; not change
343. If a monopoly market structure is transformed to a perfectly competitive one, price will
_____ and output will _____.
A) fall; fall
B) fall; increase
C) increase; increase
D) increase; fall
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344. (Figure: The Monopolist II) Look at the figure The Monopolist II. The deadweight loss
associated with this monopoly can be measured as the area:
A) 0.5(P1 – P2)(Q2 – Q1).
B) 0.5 (P2 – P4)(Q4 – Q2).
C) 0.5 (P1 – P3)Q3.
D) 0.5 (P1 – P3)Q2.
346. A natural monopolist that is price-regulated at the marginal cost output level will:
A) produce the optimal level of output and earn a normal profit.
B) eventually incur losses if MC is less than ATC.
C) be producing at the same output and price that an unregulated natural monopolist
would choose.
D) produce the optimal level of output and earn an economic profit greater than zero.
347. When firms price-discriminate, people with _____ price elasticity of demand will pay
_____ prices relative to those purchasing the same product who have a _____ price
elasticity of demand.
A) higher; higher; lower
B) lower; lower; higher
C) lower; higher; higher
D) higher; the same; lower
Page 75
Use the following to answer question 348:
348. (Figure: The Monopolist III) Look at the figure The Monopolist III. If this monopolist
perfectly price-discriminates, then it will produce _____ units. This will lead to
producer surplus equal to _____, consumer surplus equal to _____, and a deadweight
loss equal to _____.
A) 70; $2,450; $0; $0
B) 50; $1,225; $0; $0
C) 35; $1,225; $612.50; $612.50
D) 100; $1,500; $612.50; $612.50
A monopolist sells cable subscriptions in a small town and finds that it can sell 100 subscriptions
when the price is $15 a week and an additional 75 subscriptions when the price is $10 a week.
The MC for the provision of the cable is $5 a week. There are no fixed costs.
Page 76
350. (Scenario: A Small-Town Monopolist) Look at the scenario A Small-Town Monopolist.
If the company is allowed to offer different prices for its good, what is the maximum
amount of profit this company can earn?
A) $1,000
B) $750
C) $1,375
D) $1,520
352. (Figure: The Monopolist III) Look at the figure The Monopolist III. If this monopolist
profit-maximizes, it will produce _____ units and charge a price equal to _____. Its
producer surplus will be _____, its consumer surplus will be _____, and the deadweight
loss is _____.
A) 50; $30; $1,200; $600; $100
B) 35; $65; $1,225; $612.50; $612.50
C) 100; $65; $1,500; $615.50; $1,000
D) 70; $35; $1,225; $615.50; $615.50
Page 77
Answer Key
1. C
2. D
3. B
4. A
5. B
6. B
7. A
8. A
9. C
10. A
11. B
12. C
13. D
14. C
15. B
16. C
17. A
18. D
19. A
20. D
21. A
22. C
23. A
24. C
25. B
26. D
27. B
28. D
29. A
30. D
31. C
32. B
33. C
34. C
35. A
36. D
37. A
38. D
39. C
40. B
41. A
42. A
43. A
44. C
Page 78
45. C
46. D
47. A
48. D
49. C
50. C
51. B
52. D
53. A
54. A
55. A
56. D
57. D
58. C
59. B
60. A
61. A
62. A
63. A
64. D
65. D
66. C
67. B
68. D
69. A
70. C
71. D
72. C
73. A
74. D
75. C
76. C
77. C
78. A
79. B
80. D
81. B
82. A
83. C
84. B
85. B
86. A
87. D
88. B
89. A
90. C
Page 79
91. A
92. C
93. C
94. B
95. C
96. C
97. B
98. B
99. C
100. A
101. B
102. B
103. C
104. A
105. A
106. B
107. C
108. C
109. C
110. A
111. B
112. B
113. D
114. D
115. A
116. D
117. C
118. B
119. D
120. A
121. C
122. C
123. C
124. C
125. C
126. D
127. A
128. B
129. A
130. A
131. B
132. C
133. C
134. D
135. C
136. A
Page 80
137. D
138. D
139. C
140. A
141. A
142. D
143. B
144. A
145. B
146. A
147. A
148. B
149. C
150. B
151. C
152. B
153. C
154. D
155. B
156. A
157. B
158. D
159. B
160. A
161. D
162. C
163. A
164. B
165. C
166. B
167. D
168. A
169. A
170. C
171. C
172. D
173. A
174. A
175. C
176. A
177. A
178. D
179. B
180. A
181. D
182. B
Page 81
183. C
184. B
185. B
186. C
187. A
188. C
189. B
190. B
191. B
192. C
193. D
194. C
195. A
196. A
197. C
198. A
199. A
200. D
201. A
202. C
203. B
204. A
205. D
206. A
207. D
208. D
209. A
210. D
211. D
212. C
213. A
214. C
215. B
216. D
217. B
218. C
219. D
220. A
221. D
222. A
223. B
224. C
225. C
226. D
227. A
228. B
Page 82
229. C
230. A
231. B
232. C
233. D
234. B
235. D
236. B
237. D
238. C
239. D
240. A
241. A
242. C
243. D
244. C
245. B
246. C
247. D
248. A
249. D
250. B
251. A
252. B
253. A
254. A
255. D
256. C
257. B
258. A
259. A
260. A
261. A
262. B
263. B
264. A
265. A
266. A
267. A
268. B
269. B
270. A
271. A
272. B
273. B
274. A
Page 83
275. B
276. B
277. B
278. B
279. A
280. A
281. B
282. A
283. A
284. B
285. B
286. A
287. A
288. B
289. A
290. A
291. B
292. B
293. A
294. B
295. A
296. B
297. A
298. B
299. A
300. B
301. B
302. A
303. B
304. A
305. B
306. A
307. A
308. B
309. A
310. B
311. A
312. Under perfect competition, many firms produce a standardized product. There are also
usually no barriers to entry, a characteristic that allows for the long-run entry and exit of
firms. Under monopoly, only one producer sells a single undifferentiated product. Also,
barriers to entry prevent other firms from competing with the monopolist in the long
run.
Page 84
313. A natural monopoly is a firm that has become a monopoly because of its increasing
returns to scale (or economies of scale) over the relevant range of output. These
increasing returns to scale are the source of the monopoly, rather than a patent or control
of key resources. Good examples are public utilities. The electric company has huge
fixed costs, so it can produce many, many units of electricity at lower and lower average
cost. Because of these fixed costs, it is usually more cost effective for one electric
company to serve an area than it would be for multiple electric companies.
314. The patent system gives the inventor a temporary monopoly in the sale of a product. A
patent is a legal barrier to entry of other firms and provides the firm, Callaway, an
opportunity to earn monopoly profits. This profit incentive should spur innovation and
development of new and better products. When a product like a Big Bertha driver is
successful, it will prompt some to illegally produce lookalike drivers and try to sell
them. This entry drives down the price and weakens the brand name of the legitimate
product. Firms like Callaway will certainly fight to prevent this entry (or patent
infringement).
315. The perfectly competitive firm is a price taker, which means it cannot influence the
market price and therefore takes it as given by the market. The firm then sells as much
as it can at that price. This results in the demand curve for each firm's product being
horizontal at the market price. The monopolist is the sole seller, so the demand for the
firm's product is the market demand for the product. If the monopolist wants to sell
more units, the firm must lower the price. So the monopoly demand curve is downward-
sloping.
316. Assuming a monopolist does not use price discrimination, the monopolist must lower
the price to sell more units. This lowering of the price has two effects on total revenue.
First, the lower price applies to all units sold, not just the next unit. This price effect
tends to lower total revenue. Second, the lower price allows more units to be sold. This
quantity effect tends to increase total revenue. Because the quantity effect of more
revenue will be partially offset by the price effect of less revenue, the additional
(marginal) revenue must be lower than the price, which is given by the demand curve.
Therefore, the marginal revenue curve will lie below the demand curve.
317. If the firm is operating in the inelastic portion of the demand curve, a decrease in price
will actually decrease total revenue. An increase in price will increase total revenue. So
the monopolist will increase price until further increases cease to increase total revenue.
The inelastic range of demand falls in the lower half of the demand curve. In this range,
marginal revenue is negative. Because marginal cost can never be negative, there is no
way that the monopolist can set MR = MC in the lower half of the demand curve. So for
these two reasons, a monopolist (at least an unregulated one) will never set the price in
the lower half, or inelastic range, of the demand curve.
318. The monopolist will reduce output and increase the price. This higher price will
decrease consumer surplus while increasing producer surplus. Because the monopoly
output is below the competitive output (price is no longer equal to marginal cost),
deadweight loss emerges. This is the result of possible transactions that go unfulfilled
when the monopolist reduces output.
Page 85
319. Unless the ATC and MC curves are the same (horizontal), they are not arguing the same
point. The economist would like to see P = MC, because that is where there would be
no deadweight loss and social welfare would be the greatest. Depending upon the
location of the demand curve, this price might actually cause economic losses for the
firm. The monopolist would like to see P = ATC because at least at this point economic
profit would equal zero (the monopolist would break even) and all opportunity costs
would be covered.
320. A) Using the demand schedule to calculate marginal revenue, we see that MR = $3 for
the second hour, but MR = $1 for the third hour, so Eric should offer only two hours and
charge $4 per hour.
B) Eric's total revenue is $2 × 4 = $8. Because he incurs MC = $2 for each hour that he
tutors and he has no fixed cost, his total cost of tutoring for two hours is $4. So his
monopoly profit is $4.
321. He will offer hours until P = MC = $2, which happens at the fourth hour. From the first
unit he earns profit of $5 – $2 = $3. From the second he earns $2, from the third he
earns $1, and he breaks even on the fourth. His total profit is $6.
322. A
323. D
324. D
325. C
326. C
327. B
328. B
329. C
330. A
331. A
332. A
333. D
334. C
335. C
336. C
337. B
338. D
339. D
340. A
341. B
342. A
343. B
344. B
345. B
346. B
347. C
348. A
349. B
350. C
351. B
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352. B
Page 87